Abstract:

Choice alternatives are often multidimensional and risky, but how to evaluate them is unclear. Three approaches are in sharp contrast: One aggregates all dimensions and then evaluates risk, one works reversely, and one evaluates each dimension and the associated risk recursively following an exogenous linear order on dimensions. We characterize a model that nests them as special cases. The decision maker's preference reveals how she brackets and orders the dimensions, based on which she evaluates risk recursively. Using our framework, we derive a model with generalized brackets and a recursive model with a subjective weak order on dimensions.

For further information please contact: erika.somma@unibocconi.it